“Everything is coming to a head at the same time,” said Julian Callow, Europe Economist at Barclays Capital in the Daily Telegraph. On Monday, Denmark suffered its own Northern Rock crisis, with the collapse of Roskilde Bank, while new data fuelled fears that the German economy, which shrank in the second quarter, is slipping into recession and thus threatening to drag the rest of the eurozone with it.
Ominous news from Denmark
A rampant credit boom has meant that house price inflation in Denmark has been higher than the US, Spain or the UK over the past four years, while its household indebtedness exceeds UK and US levels by miles. And it was “dud real estate loans”, rather than subprime losses or a dearth of liquidity, that brought down the 26-branch bank, said Lex in the FT. With such losses likely to be “the next shoe to drop” in the credit crunch, it looks as though Denmark, the first European country to fall into recession, is once again blazing a trail for the rest of the world. “We have been warned.”
Germany looks relatively resilient
German business confidence plunged to a three-year low this month, with a sub-index of future prospects at the lowest levels since the slump of the early 1990s. Consumer confidence hit to a five-year low. On the plus side, however, Germany has avoided the worst excesses of the housing and personal borrowing booms now plaguing Britain and Denmark, noted David Wighton in The Times, and corporate Germany looks more resilient following pervasive restructuring. Nor have manufacturers overinvested in this cycle, which lessens the need for sudden retrenchment, said UniCredit’s Andrew Rees. Germany should fare better than most during this downturn.